TM’s 1H21 core PATAMI of RM586m (+15% YoY) matched expectations. All products recorded higher contribution in 1H21 and EBITDA margin improved on the back of effective cost savings measures. Unifi recorded another record breaking quarterly net adds of 188k, more than sufficient to offset Streamyx’s attrition. Management reiterated FY21 guidance which implies growth on the back of prudent CAPEX. Reiterate BUY on the back of unchanged DCF-derived TP of RM7.93. Leveraging on its extensive fibre reach, TM is perceived to be the critical fundamental building block of government’s 5G rollout under MyDigital initiative.

Within expectations. 2Q21 core net profit of RM255m (-23% QoQ, -5% YoY) brought 1H21 sum to RM586m (+15% YoY) which matched our and consensus estimates at 53% and 52%, respectively. 1H21 core earnings was arrived after excluding forex loss which amounted to RM36m.

Dividend. Declared an interim single-tier cash DPS of 7.0 sen (2Q20: 6.8 sen) which goes ex on 13 Sep. Payout ratio is at 49%, mid-point of dividend policy. YTD DPS amounted to 7.0 sen (1H20: 6.8 sen).

QoQ. Top line moderated by 2% as the declines in Data (-7%) and Others (-9%) were more than sufficient to offset the expansions in Internet (+2%) and Voice (+5%). In turn, core net profit fell 23% impacted by higher OPEX (+9%) and D&A (+5%).

YoY. Sales strengthened by 7% as all products recorded commendable growths, led by Others (+11%), followed by Internet (+8%), Data (+6%) and Voice (+2%). Though, core earnings eased 5% due to higher manpower costs (+21%) and D&A (+13%).

YTD. Turnover grew 8% supported by higher contributions from all products: Voice (+2%), Internet (+6%), Data (+16%) and Others (+10%). In turn, core PATAMI was boosted by 15% thanks to EBITDA margin improvement (+1.2ppt).

unifi and Streamyx. 188k new unifi subs in 2Q21, back-to-back record high quarterly net-add, lifted total base to 2.1m while ARPU was lower at RM141 (-RM3 QoQ). Copper broadband quarterly churn was 76k subs QoQ and ended the quarter with 416k subs. At the same time, ARPU trended flat at RM91.

FY21 guidance. Reiterate (1) Revenue growth: flat to single digit growth; (2) EBIT: higher than RM1.6bn; and (3) Capex: 14%-18% of revenue.

Forecast. Unchanged as results were in line. Reiterate BUY call on the back of unchanged DCF-derived TP of RM7.93 with WACC of 7.7% and TG of 0.8%. We are particularly positive on its cost optimization measures which is now yielding an impactful outcome. Leveraging on its extensive fibre reach, TM is perceived to be the critical fundamental building block of government’s 5G rollout under MyDigital initiative. Furthermore, TM is well positioned as the sole Malaysian Cloud Service Provider when sovereignty is the utmost important in dealing with government’s data.
 

Source: Hong Leong Investment Bank Research - 30 Aug 2021